Sama Ramachandra Reddy, Hyderabad V. Dy. Commissioner of Income Tax , Central Circle-2, Hyderabad

ITA 164/Hyd/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0804 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 02-06-2020
• Assessment Year: 2005-2006
• Appeal Filed On: 02-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KIRAN KATTA
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Unexplained investment; Depreciation; Search and seizure
• Section: 69

Judgement Text

ITA NO 164 OF 2018 SAMA RAMACHANDRA R EDDY HYDERABAD. PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES SMC, HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO.164/HYD/2018 ASSESSMENT YEAR: 2005-06 SAMA RAMACHANDRA REDDY HYDERABAD PAN:AUAPS0609R VS. DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 2 HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI P. MURALI MOHAN RAO, AR REVENUE BY : SRI KIRAN KATTA, DR DATE OF HEARING: 02/06/2020 DATE OF PRONOUNCEMENT: 11/06/2020 ORDER THIS IS ASSESSEES APPEAL FOR THE AY.2005-06, DIREC TED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1 , HYDERABAD, DATED 01-06-2017. 2. BRIEF FACTS OF THE CASE ARE THAT, THERE WAS A SEARCH AND SEIZURE OPERATION U/S.132 OF THE INCOME TAX ACT [ACT] IN TH E RESIDENTIAL PREMISES OF THE ASSESSEE ON 09-10-2007. CONSEQUENT TO THE S EARCH AND SEIZURE OPERATION, THE ASSESSING OFFICER (AO) ISSUED A NOTI CE U/S.153A OF THE ACT, DT.26-06-2008 FOR THE AYS.2002-03 TO 2007-08. THE ASSESSEE FILED HIS RETURN OF INCOME ON 09-09-2009, ADMITTING TOTAL INC OME OF RS.50,49,197/-, BUT DID NOT PAY ANY TAXES ON THE AD MITTED INCOME. THE TOTAL SELF-ASSESSMENT TAX PAYABLE AS PER THE RETURN OF INCOME WAS RS.26,48,136/-. THEREAFTER, THE ASSESSEE FILED A R EVISED COMPUTATION OF INCOME. BUT THE AO DID NOT ACCEPT THE SAME. 3. THE ASSESSEE FILED AN APPEAL AGAINST THE AS SESSMENT ORDER BEFORE THE CIT(A), WHO ACCEPTED THE REVISED COMPUTATION OF INCOME AND DELETED THE ADDITION MADE BY THE AO. MEANWHILE, THE AO ISS UED A NOTICE ITA NO 164 OF 2018 SAMA RAMACHANDRA R EDDY HYDERABAD. PAGE 2 OF 7 U/S.221(1) OF THE ACT FOR LEVY OF PENALTY FOR NON-P AYMENT OF ADMITTED TAX. THE ASSESSEE FILED A REPLY ON 15-09-2010, STATING T HAT HE HAS FILED AN APPEAL AGAINST ASSESSMENT ORDER U/S.143(3) OF THE A CT BEFORE THE CIT(A). THE AO DID NOT ACCEPT THE CONTENTIONS OF ASSESSEE A ND HELD THAT THE ASSESSEE IS LIABLE TO PAY TAXES ON THE ADMITTED INC OME AND ON FAILURE TO DO SO, 30% OF THE SELF-ASSESSMENT TAX DUE FROM THE ASSESSEE WHICH WORKED OUT TO RS.7,94,440/- WAS LEVIED AS PENALTY U /S.221 OF THE ACT. HE ORDERED ACCORDINGLY. 4. AGGRIEVED BY THE PENALTY ORDER, THE ASSESSE E PREFERRED AN APPEAL BEFORE THE CIT(A). MEANWHILE, THE CIT(A) DEALING WI TH THE APPEAL AGAINST THE ASSESSMENT ORDER U/S.143(3) OF THE ACT, HAS DEL ETED THE ENTIRE ADDITION AFTER ACCEPTING THE REVISED COMPUTATION OF INCOME OF THE ASSESSEE. THE SAME WAS BROUGHT TO THE NOTICE OF TH E CIT(A) IN THE PENALTY PROCEEDINGS. HOWEVER, THE CIT(A) CONFIRMED THE PENALTY U/S.221(1) OF THE ACT, AGAINST WHICH, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL, BY RAISING THE FOLLOWING GROUN DS: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (AP PEALS)- 1, HYDERABAD, IS ERRONEOUS BOTH ON FACTS AND IN LAW . 2. THE LD.CIT(A) ERRED IN DISMISSING THE APPEAL. 3. THE LD.CIT(A) ERRED IN UPHOLDING THE PENALTY LEV IED OF RS.7,94,440/- U/S.221(1) OF THE ACT. 4. THE APPELLANT MAY ADD OR ALTER OR MODIFY OR SUBS TITUTE OR DELETE AND / OR RESCIND ALL OR ANY OF THE GROUNDS O F APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 4.1. THE CASE WAS TAKEN UP FOR HEARING ON 02-06 -2020 THROUGH VIDEO CONFERENCING AND BOTH THE PARTIES WERE HEARD. 5. THE LD.COUNSEL FOR THE ASSESSEE, REITERATING THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW HAS DRAWN OUR ATT ENTION TO THE DECISION OF THE CIT(A), GUNTUR, DT.15-06-2011 IN TH E APPEAL AGAINST THE ASSESSMENT ORDER, WHEREIN IN PARAS 3.3 TO 4.2, THE CIT(A) HAS HELD AS UNDER: 3.3. WITH REGARD TO DISALLOWANCE OF RS.2,61,000/- ON ACCOUNT OF PROVISIONS MADE BY THE ASSESSEE AGAINST DEFICIT CAS H. THE APPELLANT HAS SUBMITTED HIS EXPLANATION AS UNDER:- ITA NO 164 OF 2018 SAMA RAMACHANDRA R EDDY HYDERABAD. PAGE 3 OF 7 'THE ASSESSING OFFICER HAS ERRED WHILE DISALLOWING THE PROVISIONS AMOUNTING TO RS.2,61,000/- WITHOUT CONSIDERING THE INFORMATION AND EXPLANATIONS OFFERED BY THE ASSESSEE. THE LIST FOR THE SAME HAS BEEN FILED ALONG WITH THE RETURN OF INCOME DESCRIBING THE NATU RE OF EXPENDITURE AS RS.2,00,000/- TOWARDS CAR MAINTENANCE AND RS. 61,00 0/- TOWARDS THE INTEREST PAYABLE. THE ASSESSING OFFICER HAS ADDED T HE SAME ON THE GROUND THAT NO INTEREST PAYMENT WAS MADE IN THE ASS ESSMENT YEAR AND ALSO IN THE SUBSEQUENT YEARS AND DISALLOWED THE PRO VISION CREATED IN THE CASH FLOW STATEMENT AND ADDED BACK TO THE RETURNED INCOME WHICH IS NOT CORRECT, BAD IN LAW AND NOT JUSTIFIED. THE APPELLANT ALSO FURTHER SUBMITTED AS UNDER:- 'THE ASSESSING OFFICER HAS ADDED THE ABOVE AMOUNT O N THE GROUND THAT NO INTEREST PAYMENT WAS MADE AND THE ASSESSEE HAD A LSO NOT IDENTIFIED THE PERSONS TO WHOM THE PAYMENT SHOULD BE MADE IN T HE RELEVANT ASSESSMENT YEAR AND ALSO IN THE SUBSEQUENT YEARS AN D DISALLOWED THE PROVISION CREATED IN THE CASH FLOW STATEMENT AND AD DED BACK TO THE RETURNED INCOME WHICH IS NOT CORRECT, BAD IN LAW AN D NOT JUSTIFIED. THE ASSESSEE HAS FILED A PAPER BOOK AS ADDITIONAL E VIDENCE WHICH CONSISTS THE INCOME TAX RETURN COPY, REVISED COMPUT ATION FILED BY ASSESSEE, AND THE DETAILS OF INTEREST PAID ALONG WI TH CHEQUE NUMBERS AND DEPRECIATION CLAIMED ON CAR WHICH MAY PLEASE BE CONSIDERED IN FAVOUR OF THE ASSESSEE AND THE DISALLOWANCE FOR THE ABOVE ASST. YEARS MAY PLEASE BE DELETED. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPEL LANT, GONE THROUGH THE ORDER OF THE AO AND PERUSED ALL OTHER INFORMATI ON BROUGHT TO MY NOTICE. AT THE STAGE OF ASSESSMENT, EVEN THOUGH THE RE WAS COMPLIANCE THE AO HAS DRAWN AN ADVERSE INFERENCE, THOUGH THE APPEL LANT HAS EXPLAINED THE SAME. SINCE THE DECISION OF THE AO IS NOT BASED ON THE INFORMATION FURNISHED BY THE APPELLANT IN COURSE OF THE S & S ASSESSMENT PROCEEDINGS, THE ADDITION MADE BY THE AO DOES NOT SURVIVE. IN ADDITION THERE IS NO FINDING OF THE AO THAT HIS DECISION IS BASED ON ANY FINDING OR MATERIAL FOUND IN COURSE OF THE ACTI ON UNDER SECTION 132(1) OF THE IT ACT, 1961. IN THE CIRCUMSTANCES, THE AO IS DIRECTED TO DELETE THE SAME. 4.1. WITH REGARD TO SECOND ADDITION OF RS.1,00,00,0 00/- ON ACCOUNT OF UNEXPLAINED INVESTMENT U/S. 69 IN M/S DNA BIOTECH L TD., THE APPELLANT HAS SUBMITTED HIS EXPLANATION AS UNDER.- 'THE ASSESSING OFFICER HAS ERRED WHILE DISALLOWING THE INVESTMENT MADE BY THE ASSESSEE IN M/S DNA BIOTECH LTD. AND TREATED IT AS UNEXPLAINED INVESTMENT U/S 69 OF THE IT ACT WHICH IS NOT CORREC T, BAD IN LAW AND NOT JUSTIFIED. THE ASSESSING OFFICER HAS ADDED TO THE T UNE OF RS.1,00,00,000/- CONTENDING THAT THE ASSESSEE HAS N OT OFFERED ANY EXPLANATIONS AND ADDED BACK TO THE RETURNED INCOME. THE ASSESSEE HAS NOT ACCEPTED FOR ANY ADDITIONS. THE ASSESSEE HAS AL SO SUBMITTED THE REVISED COMPUTATIONS BUT WHICH WERE NOT AT ALL CONS IDERED BY THE ASSESSING OFFICER AND ISSUED THE ASSESSMENT ORDERS. THE ASSESSEE HAS OFFERED ALL THE INFORMATION AND EXPLANATIONS AS REQ UIRED BY THE AO FOR CARRYING ON THE ASSESSMENT PROCEEDINGS BUT WHICH AR E NOT CONSIDERED BY ITA NO 164 OF 2018 SAMA RAMACHANDRA R EDDY HYDERABAD. PAGE 4 OF 7 THE ASSESSING OFFICER AND ADDED TO THE INCOME RETUR NED WHICH IS NOT CORRECT.' 4.2. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT, GONE THROUGH THE ORDER OF THE AO. IN AS MUCH AS THIS ADD ITION IS CONCERNED THERE IS NO FINDING OF THE AO THAT HIS DECISION IS BASED ON ANY FINDING OR MATERIAL FOUND IN COURSE OF THE ACTION UNDER SECTIO N 132(1) OF THE IT ACT, 1961. IN THE CIRCUMSTANCES, THE AO IS DIRECTED TO DELETE THE SAME . 5.1. THE LD.DR HAS RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 5.2. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE ORDER OF THE CIT(A) IN THE APPEAL AGAINST THE ASSESSMENT ORDER, IT CAN BE SEEN THAT THE CIT(A) HAS CONSIDERED THE REVISED COMPUTATION OF IN COME FILED BY THE ASSESSEE AND HAS DELETED THE ADDITIONS MADE BY THE AO. THE REVENUE HAS NOT FILED ANY APPEAL AGAINST THE ORDER OF CIT(A ). HENCE, THE SAID ORDER HAS BECOME FINAL. 5.3. THE LEARNED COUNSEL FOR THE ASSESSEE HAD D RAWN MY ATTENTION TO THE PROVISIONS OF SECTION 221(2) OF THE ACT, WHICH READS AS UNDER: SECTION 221(2) WHERE AS A RESULT OF ANY FINAL ORDE R THE AMOUNT OF TAX, WITH RESPECT TO THE DEFAULT IN THE P AYMENT OF WHICH THE PENALTY WAS LEVIED, HAS BEEN WHOLLY RE DUCED, THE PENALTY LEVIED SHALL BE CANCELLED AND THE AMOUN T OF PENALTY PAID SHALL BE REFUNDED. 5.4. IN THE CASE BEFORE THIS TRIBUNAL, THE FINAL ORDER OF THE CIT(A) HAS TO BE TAKEN INTO CONSIDERATION. 6. THOUGH THE LD.DR SUPPORTED THE ORDERS OF T HE AUTHORITIES BELOW, I FIND THAT SINCE THE VERY ADDITION HAS BEEN DELETE D AND THERE IS NO OUTSTANDING DEMAND OF TAX, THE PENALTY U/S.221 OF T HE ACT IS NOT SUSTAINABLE. 6.1. I ALSO FIND SUPPORT FROM THE DECISION OF TH E CO-ORDINATE BENCH AT MUMBAI IN THE CASE OF HEDDLE KNOWLEDGE (P) LTD., VS . ITO (2018) [90 TAXMANN.COM 376] (MUMBAI), WHEREIN THE TRIBUNAL HAS CONSIDERED THE AMENDED PROVISIONS OF 140A(3) OF THE ACT W.E.F. 01-04-1989 AND HELD THAT IT DOES NOT ENVISAGE ANY PENALTY FOR NON-PAYME NT OF SELF-ASSESSMENT TAX AND THEREFORE THE AO WAS NOT JUSTIFIED IN LEVYI NG PENALTY BY TAKING ITA NO 164 OF 2018 SAMA RAMACHANDRA R EDDY HYDERABAD. PAGE 5 OF 7 RECOURSE TO SECTION 221(1) OF THE ACT. FOR THE SAK E OF READY REFERENCE, RELEVANT PARAGRAPH OF THE SAID ORDER IS REPRODUCED HEREIN BELOW: 6. HOWEVER, A CONTRARY POSITION IS TAKEN BY THE RE VENUE TO THE EFFECT THAT FOR HAVING DEFAULTED IN PAYMENT OF SELF -ASSESSMENT TAX WITHIN THE STIPULATED PERIOD, ASSESSEE QUALIFIES TO BE 'AN ASSESSEE IN DEFAULT' AS PRESCRIBED IN THE AMENDED SEC. 140A( 3) OF THE ACT AND, THEREFORE, IF ONE IS TO READ THE SAME WITH SEC . 221 (1) OF THE ACT, THE ACTION OF THE ASSESSING OFFICER IN IMPOSIN G PENALTY IS QUITE JUSTIFIED. IN SUM AND SUBSTANCE, IT IS SOUGHT TO BE EMPHASISED ON THE STRENGTH OF SEC. 221 (1) OF THE ACT THAT THE PE NALTY IS LEVIABLE SO LONG AS THE DEFAULT IS IN THE NATURE WHICH RENDE RS THE ASSESSEE AS AN 'ASSESSEE IN DEFAULT' FOR PAYMENT OF TAX. SEC . 221(1) OF THE ACT PRESCRIBES FOR PENALTY WHEN ASSESSEE IS IN DEFA ULT IN MAKING THE PAYMENT OF TAX. ON THE FACE OF IT, THE ARGUMENT OF THE REVENUE APPEARS TO BE JUSTIFIED, SO HOWEVER, THE SAME DOES NOT MERIT ACCEPTANCE IF ONE EXAMINES THE ISSUE IN SLIGHT DETA IL. NOTABLY, THE PENALTY ENVISAGED SEC. 140A(3) IN THE UNAMENDED PRO VISION WAS ON THE STATUTE ALONGWITH THE PENALTY ENVISAGED U/S 221 OF THE ACT. ONCE SEC. 140A(3) OF THE ACT HAS BEEN AMENDED W.E.F . 01.04.1989, AS WE HAVE SEEN EARLIER, THERE IS NO AMENDMENT OF S EC. 221 OF THE ACT AND IT CONTINUES TO REMAIN THE SAME. WHAT WE AR E TRYING TO EMPHASISE IS IF THE PLEA OF THE REVENUE IS TO BE AC CEPTED, BASED ON THE AMENDMENT TO SEC. 140A(3) OF THE ACT, IT WOU LD MEAN THAT PRIOR TO 01.04.1989 THE SAME DEFAULT INVITED PENAL PROVISIONS UNDER TWO SECTIONS, NAMELY, SEC. 140A(3) AS WELL AS SEC. 221(1) OF THE ACT, WHICH WOULD APPEAR TO BE PECULIAR AND UNIN TENDED. FURTHERMORE, THE INTENTION OF THE LEGISLATURE AT TH E TIME OF INSERTION OF THE AMENDED SEC. 140A(3) MAKES IT CLEAR THAT THE OLD PROVISIONS OF SEC. 140A(3) PRESCRIBING FOR LEVY OF PENALTY FOR NONPAYMENT OF SELF-ASSESSMENT TAX WAS NO LONGER FOUND NECESSARY B ECAUSE THE SAID DEFAULT WOULD HENCEFORTH INVITE MANDATORY CHAR GING OF INTEREST. OSTENSIBLY, THE LEGISLATURE DID NOT ENVIS AGE THAT CONSEQUENT TO THE AMENDMENT, THE DEFAULT IN PAYMENT OF SELF- ASSESSMENT TAX WOULD HITHERTO BE COVERED BY THE SCO PE OF SEC. 221 (1) OF THE ACT. THE EMPHASIS OF THE REVENUE IS TO P OINT OUT THAT THE NON-PAYMENT OF SELF-ASSESSMENT TAX RENDERS THE ASSE SSEE 'IN DEFAULT' IN THE AMENDED PROVISION WHICH FURTHER PRE SCRIBES THAT 'ALL THE PROVISIONS OF THIS ACT SHALL APPLY ACCORDI NGLY' AND, THEREFORE, THE DEFAULT IS HITHERTO (FROM 01.04.1989 ) COVERED BY SEC. 221 (1) OF THE ACT. IN OUR VIEW, THE CONSEQUENCE OF THE AFORESAID TWO EXPRESSIONS CONTAINED IN SEC. 140A(3) ARE ALSO NOT OF THE TYPE SOUGHT TO BE UNDERSTOOD BY THE REVENUE, AND RATHER THE ASSESSEE IS TO BE TREATED AS AN 'ASSESSEE IN DEFAULT' FOR TH E LIMITED PURPOSE OF ENABLING THE ASSESSING OFFICER TO MAKE RECOVERY OF THE AMOUNT OF TAX AND INTEREST DUE AND NOT FOR LEVY OF PENALTY , AN ASPECT WHICH HAS BEEN SPECIFICALLY DONE AWAY IN THE NEW PROVISIO N. THEREFORE, CONSIDERED IN THE AFORESAID LIGHT, IN OUR VIEW, THE FACT THAT THE AMENDED SEC. 140A(3) W.E.F. 01.04.1989 DOES NOT ENV ISAGE ANY PENALTY FOR NON-PAYMENT OF SELF-ASSESSMENT TAX, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN LEVYING THE IMPUGNED P ENALTY BY MAKING RECOURSE TO SEC. 221 (1) OF THE ACT. BEFORE PARTING, WE MAY AGAIN EMPHASISE THAT SEC. 221 OF THE ACT REMAINS UN CHANGED, BOTH ITA NO 164 OF 2018 SAMA RAMACHANDRA R EDDY HYDERABAD. PAGE 6 OF 7 DURING THE PRE AND POST AMENDED SEC. 140A(3) OF THE ACT AND EVEN IN THE PRE-AMENDED SITUATION, PENALTY U/S 221 OF TH E ACT WAS NOT ATTRACTED FOR DEFAULT IN PAYMENT OF SELF-ASSESSMENT TAX, WHICH WAS EXPRESSLY COVERED IN PRE 01.04.1989 PREVAILING SEC. 140A(3). THUS, WITHOUT THERE BEING ANY REQUISITE CORRESPONDING AME NDMENT TO SEC. 221 OF THE ACT IN CONSONANCE WITH THE AMENDMEN TS CARRIED OUT IN SEC. 140A(3) OF THE ACT W.E.F. 01.04.1989, T HE ASSESSING OFFICER ERRED IN LEVYING THE IMPUGNED PENALTY. THUS , ON THIS ASPECT, WE HEREBY SET-ASIDE THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE PENALTY IMPOSED U/S 140A(3) R .W.S. 221(1) OF THE ACT. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED , AS ABOVE. 7. RESPECTFULLY FOLLOWING THE ABOVE ORDER AND IN VIEW OF THE PROVISIONS OF SECTION 221(2) OF THE ACT, I DELETE THE PENALTY LEVIED U/S.221(1) OF THE ACT. ACCORDINGLY, THE APPEAL OF ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH JUNE, 2020 SD/- (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 11 TH JUNE, 2020. TNMM & VINODAN/SPS ITA NO 164 OF 2018 SAMA RAMACHANDRA R EDDY HYDERABAD. PAGE 7 OF 7 COPY TO: 1. SHRI SAMA RAMACHANDRA REDDY, C/O. P. MURALI & CO ., CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD. 2.THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, HYDERABAD. 3. CIT (APPEALS)-1, HYDERABAD. 4. THE PR.CIT-1, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE. BY ORDER